Game Theory #7: America's Game

We have already discussed the British Empire and how it ultimately triumphed over its main rivals—the French, the Spanish, and the Dutch—because of three major powers.

1. The Bank of England: What made the Bank of England so important is that it could absorb foreign capital from all around the world. At first, it absorbed capital from the Dutch Republic, but then if you were a French aristocrat, the Catholic Church, or the Habsburgs, you could all move your capital to England where it would be safe because it would be protected by the law and your property rights. When Britain became an empire, this was important because local elites in China, India, and Southeast Asia would help the British because they were incentivized to do so. They could help the British steal from these places and then move their wealth to England or one of the British colonies for safekeeping. That's a source of English power.
2. Soft Power: We are in school learning English because we want to go and study in the West—that's soft power. Shakespeare, the BBC, and Oxbridge are all components of British soft power which still rules the world today.
3. The British Navy: The navy controlled the sea lanes and therefore controlled all trade.

For 100 years, Britain was able to maintain a global empire, which was really the first global empire because it spanned the entire world. But there were three limitations to the British Empire.

The Three Limitations of the British Empire

The first major limitation is that Britain had an ethnicity; it had a race. It was the white people, the Anglo-Saxons. And so even though Britain was ruling over a vast empire, it was very much racist. It saw itself as superior to everyone else, and that limited its capacity to work with local elites. In other words, eventually, India rebelled to establish its independence, and eventually, Britain lost its overseas empire. A classic example is the 2016 Brexit when the English people decided that they no longer wanted to be part of Europe. Even though Britain is an empire, its people are very provincial. They see themselves as better and separate from everyone else. I've met English people who've told me that English people cannot learn a foreign language. They speak English very well, and that's it. They can't learn French, they can't learn Spanish, they refuse to learn Chinese. They told me it's because their brains are different; their brains are hardwired to speak English really well, and that's it. That's just the British attitude.

The second problem is the idea of a currency or wealth standard. You're stealing wealth from other places, but what is wealth? For the longest time, people understood wealth as gold. The problem with this is that there's a limit to the amount of gold in the world, and therefore there's a limit to how many people can participate in this game and how much money they can win. It's really a game only for the elite.

The third problem for Britain is that it's a small island with very few people and very limited resources. Therefore, it was not sustainable for Britain to control the entire world. There's a limitation to its reach, and ultimately other powers in Europe would arise to challenge British hegemony, including Russia and Germany.

Ultimately, the power that would overthrow the British Empire to create its own empire is, of course, America. And what America would do that's very important is resolve all three of these limitations to create a world game in which we all play today. Britain birthed this game, but there were limitations to how far this game could spread. America would then take the concept of this game and spread it all around the world until it conquered the entire world.

How America Solved Britain's Problems

How did they do so?

First of all, America is not a small island. It is a continental fortress, and in fact, it controls the entire Western Hemisphere. We know that the Western Hemisphere is very, very wealthy. So America is not just the country of America; it's really the Western Hemisphere and as such has unlimited population, unlimited resources, and unlimited land. This resolves the issue of resources.

Second, the currency. What America would do that would revolutionize the world is make the US dollar the standard of wealth. Because the US dollar is just a concept, an idea, everyone can now play this game, and wealth can now be infinite. Before, gold was what everyone was playing for, but there's a limit to gold. With US dollars, anyone and everyone in the world can now play.

The ethnicity is another problem. What America did that was very clever is tell the world, "We are not an ethnicity. We're not a land. What we really are is a game." The idea is that America became a nation game.

Defining the Nation: From Monarchy to a Game

For the longest time, we had problems deciding what a nation ought to be. Traditionally, nations have been ruled politically through:

• Monarchy: A king is in charge. Everyone just obeys the king.
• Oligarchy: The nobility (or aristocracy) are in charge. A classic example is Rome.
• Democracy: The people make all the decisions. If a decision is to be made, people get together and give speeches. Whoever gives the best speech gets the most votes, and that decision is implemented. The classic example is Athens.
• Theocracy: The priests are in charge and represent the will of God. The last example is medieval Catholic Europe when the Catholic Church was in charge.

Starting with the Enlightenment, when God was no longer considered that important, philosophers debated what a nation or society ought to be. The most popular idea at this time was social contract theory.

Two Views of the Social Contract

There are two major theorists. The first is John Locke, who was English. For him, government is very simple. Human beings have three fundamental, inalienable rights that God gave us, which means no one can take them away.

1. Life
2. Liberty: The right to say and do whatever we want.
3. The pursuit of property: Wealth.

In other words, government exists to protect the wealth that we generate through our hard work. And if we steal it, that's okay as well. If we kill people in India, China, and France to get it, that's okay, too, because it happened elsewhere. If you have wealth, you like this system a lot. Not only that, but you are incentivized to work really hard. That's what actually allowed England to overtake the French, the Dutch, and the Spanish.

Then you have another theorist named Jean-Jacques Rousseau. His theory is different. It's also a social contract theory, but it's a different idea. We're born in a state of nature with complete freedom. Why do we choose to give up this freedom and come into society? The reason is that when we do so, we create a social contract that creates the general will.

The general will is a substitute for God. It is the expression of the best of who we are. By ourselves, we're fine. When we come together, we create a new concept that allows us to be truly and fully human.

The Categorical Imperative and the General Will

The German philosopher Immanuel Kant explained that the very basis of humanity, what we should all try to achieve, is something called the categorical imperative. It is the highest moral law, God's law. There are three components to the categorical imperative:

1. Universality: Imagine that whatever you do, everyone else around you will automatically do. If you want to drink alcohol, everyone's going to drink alcohol. Do you want to live in a society of alcoholics? If you cheat on a test, everyone is immediately going to cheat as well. Do you want to live in a society of cheaters? If you read books, everyone else is going to read books. Imagine that whatever you do will be replicated by everyone else immediately.
2. Free Will: I know that eating ice cream is bad and eating protein is good, but I cannot be forced to eat chicken even though it's better for me. I have to choose to eat chicken by myself. We cannot coerce people to do what they do not want to do.
3. Humanity as an end in itself: You cannot use a human being to achieve a higher purpose because humans are the ultimate purpose. I can't be like a king that says, "I'm going to war to make a lot of money for everyone, and I'll sacrifice 50% of my people, but the other 50% who live will be happy." You can't do that because you cannot sacrifice anyone's life to achieve a higher end. The ultimate end is human life.

This becomes the theoretical basis for the general will. In practical terms, the general will gives rise to government, and the government gives rise to laws. The legitimacy of the government comes from the consensus of the people, which is the general will. The general will is not democracy; it is an abstract idea that represents the best of who we can be. Just because everyone votes to kill a person they don't like doesn't make it the general will. The general will is that everyone is important. Do unto others as you would want others to do unto you. If people vote for something that goes against this, then the government is illegitimate.

This is important because this becomes the basis of the French Revolution. During the French Revolution, the entire European continent—including Britain, Prussia, Austria, and Russia—attacked France. France was poor and had no monarchy, but it defeated everyone. Why? Because people were energized to fight for their nation. They believed, "I am now part of a greater good of equity in this game. Therefore, I will defend this nation with my life." For the longest time, France was unbeatable on the battlefield. That is the French conception of a nation: a social contract which guarantees rights to its citizens, and in return, its citizens must be willing to sacrifice their lives for the nation.

The Prussian Model: Iron and Blood

There's another conception of the nation-state, which comes from the Prussians, or the Germans. It's the idea of iron and blood. A nation is not something that you choose to get into; it's not something you sign a contract with. A nation is in your blood. A nation is language, heritage, and land. You prove that you are worthy by sacrificing yourself in battle.

In 1870, in the Franco-Prussian War, these two concepts of the nation-state came into battle. The French was a social contract: you fight for us because you agree to be a citizen of this nation which guarantees you certain rights. Prussia was like, "No, you fight because it is your duty. It is in your blood, your language, your culture, your family." When these two cultures clashed, it was the Prussians who won, which created Germany. In 1870, the modern nation of Germany was founded by the Prussians when they defeated France.

America: The Nation as a Game

Now we go to America, which has a different conception of the nation-state. At this time in history, America was a very small place—13 colonies—and the continent was controlled by indigenous people, the French, and the Spanish. But the Americans were very ambitious and expanding really fast. Britain, the home country, actually became afraid of America because by the 1700s, America had more people and was wealthier, welcoming people from all around Europe. So Britain tried to limit the expansion of America, saying you can't cross the Appalachian Mountains. America said, "Screw you," and revolted. This created the American Revolution.

In 1789, America created the Constitution, which became the highest law in the land. The American founding fathers looked around the world; they knew about the British and French systems. They were trying to grow the country as fast as possible while fighting the Spanish, the French, the British, and the indigenous people. They decided that the nation will become a game where the citizen is a player trying to maximize his wealth. Through this process, he will be energetic and work hard, and this energy will contribute to the overall wealth of the nation, allowing America to grow very, very fast.

For this to work, the game had to have three major characteristics:

1. Open: Anyone can come and play. This meant limiting the history and ethnicity of the place. The concept America created is the melting pot. We welcome anyone who comes to America, regardless of race, history, or wealth, as long as you're willing to assimilate.
2. Fair: The game is fair. The only criterion to generate wealth is how hard you work, how much talent you have, how much merit you have.
3. Clear: The rules are really clear. In America, the rules are very simple: you go to America, you follow the law, you work really hard, you get rich. It's called the American Dream.

Look, this is true. When you go to America, you will discover this. If you work really hard, if you're really talented, if you're really smart, they will respect that. I've been to a lot of countries, and I can tell you that in America this is true. It's not true in Canada. I grew up in Canada, and they don't really care if you're ambitious, smart, or work hard. They expect you to follow the rules and conform. You go to China, we all know what China is. No one cares if you work hard or if you're smart. It's all about your guanxi, about your family. This is true for most of the world.

I would say that the idea of merit is only true for two places. America is the most obvious example. I've been to meetings where at first, Americans are like, "This guy is Chinese. He probably doesn't speak any English. He's not that smart." There's discrimination going on. But the moment I speak, the moment I try to make my case, they are won over by my logic, my arguments, my creativity, and they welcome me into the club. That's just the American attitude of being open-minded, of being generous, of appreciating your talent. The English are also very similar in that way. Maybe they're racist, but if you can make a good argument, they will accept it. But guess what? Nowhere else is this true. In China, you can have the best argument in the world, and no one cares. There are lots of issues with America, but in all honesty, America is a place that really does appreciate and reward merit. That's why everyone wants to go there.

The Constitution: The Rulebook for the Game

How did America create this system? It did so through the Constitution. The idea of the Constitution is to create a game and make this game above power. They did that by creating a system of government that checks and balances each other.

• The President: Has war powers, or the sword.
• The Congress: Can create laws and control spending, what's called the purse.
• The Supreme Court: Interprets the Constitution, the highest law in the land.

The powers of the government are divided. If the president were to declare war, he needs Congress to approve because Congress has to give the money to start the war. The idea that the Constitution is the highest law in the land means that it's really a rule of law. You also have a parallel system called the judiciary, the court system, which protects property rights in the same way that they do in Britain.

The very idea is that this is a game. The government is a system to maintain the openness, clarity, and fairness of the game. Because of this, America was very quickly able to dominate the world. The thing about this game that's very important for us to understand is that it is expansionist.

Challenges and the Expansion of the Game

In its history, America faced certain challenges to this game, and the game won out every single time. The first major challenge was the American Civil War (1861-1864), fought between the North and the South. This was a clash of economic systems. The North played the game and believed in free labor. The South was its own independent economic system that focused on agriculture and used slave labor. For many Americans in the North, slave labor was offensive because it corrupted the game. Remember, America started on the idea of openness, fairness, and clarity. But if you're a slave, that's not fair, because you were born a slave and can never participate.

They fought a civil war, and the North won because it focused on free labor. That meant there were more people in the North, the North was wealthier because of manufacturing, and the North was more energetic.

Now the game is spreading across America, but it stops because America can't expand anymore. It conquers the West, and now the game has an issue because of the nature of money. The problem with capitalism, with this game, is that the longer you play, one person eventually controls all the money. Now that the frontier has been settled and the borders have been controlled, a few people are controlling all the money, which leads to the Great Depression. The solution is America has to go and conquer the world, which it does in World War II.

Creating the World Game: Bretton Woods and the US Dollar

Now America needs to spread this game throughout the world. It does that by creating the US dollar. In July 1944, a year before the war ended, America organized the Bretton Woods Conference in New Hampshire. The idea was to establish the world game. Before, America's game was limited to America, but now America wanted to scale its game to the entire world.

How did it do that? First, it made the US dollar the reserve currency of the world. This means that every other currency has to be derived from the US dollar and will find its value from the US dollar. If you have Canadian dollars, you can change them for US dollars, which is what's valuable. They also agreed on an exchange rate. This is the system we have today. The global reserve currency is the US dollar. The Renminbi derives its value from its relationship with the US dollar; it is not valued by itself.

Now, you might think, "Wait a minute, the Americans can just print as much money as they want." To solve this problem, the Americans said the US dollar will be pegged to gold. You can always take your dollar and exchange it for gold. Because there's a limit to gold, there has to be a limit to US dollars, which keeps the system stable.

Second, America needed to expand this game because it was in competition with the Soviet Union, which was against this game. So it created two new organizations to spread the game throughout the world: the World Bank and the International Monetary Fund (IMF).

• The World Bank: Their job is to give you loans. Let's say you are China and you are poor, and you need to build dams. The World Bank gives you money, and when it gives you money, it allows you to start playing this game.
• The IMF: Eventually, countries borrow so much money they go into debt and can't pay it off. Then the IMF comes in and changes your government and its policies to make it conform more to the game. Its main mechanism is called privatization. The IMF says, "You're inefficient. You can't pay off the debt because the public should not be in control of infrastructure, water, electricity, and land. Private companies should be in charge."

The goal of the World Bank and IMF is to spread the game throughout the world. Then, they created other institutions to manage this global game:

• GATT (1947): The General Agreement on Tariffs and Trade, which became the World Trade Organization (WTO) in 1995. This is basically an agreement on free trade.
• SWIFT (1973): An agreement among different banks in the world on how to transfer money. If you want to transfer money from China into America to go to university, it has to go through SWIFT. This allows for more cooperation among banks to use US dollars.
• Bank for International Settlements (BIS): This is where the central banks of different countries get together and agree on certain policies, all done privately and in secret.

This is the game that America created.

How the Dollar Conquered the World

For the longest time, this system worked well. The United States was in competition with the Soviet Union, but over time, the Americans started to abuse the system. They paid for things they couldn't really afford, like the war in Vietnam, the space race, and the Great Society program. They were just spending too much money, and other countries started to freak out. France basically withdrew all its gold from the United States.

So, in 1971, President Nixon said, "Here's the secret, guys. We actually don't have enough gold to pay off everyone. So, screw this. We're not going to peg the dollar to gold anymore." You could no longer redeem your US dollars for gold. It was done.

Now, the US dollar became a Ponzi scheme. A Ponzi scheme is basically something that is valuable only because people want to use it. It has no value in itself. So now Nixon had to go and create demand for the US dollar.

The first thing he did was go to Saudi Arabia and create the petrodollar. The idea is very simple: Saudi Arabia, the largest oil exporter in the world, will only accept payment in US dollars. Therefore, if you want oil, you have to have US dollars.

The second thing that Nixon did was even more important: he visited China. Not only did he visit China, but he established a framework in which America would give China everything. In the 1980s, America gave China:

• Market access: US consumers could now buy goods from China. That's a huge deal.
• FDI, technology, and education: America gave foreign direct investment, capital, and technology to China. All these military secrets that America had, it gave to China for free. Not only that, but America educated the Chinese elite. In the 1980s, Chinese graduate students went to America to learn American technology.
• Military protection: America would now protect China from conflicts with Southeast Asia, Japan, and Vietnam. When Chinese ships exported goods to Europe, Africa, and the United States, the US Navy would protect them.

You're like, "Oh my god, America gave China everything. America made China rich. Why would America do that?" There's one answer and only one answer: to make China use US dollars. It's that simple. Now when China trades with the world, it gets US dollars in return. The entire idea was to make the world addicted to US dollars.

The New World Order and Its Instabilities

Now that the world is addicted to and depends on US dollars, America can control the global economy. In 1991, the Soviet Union collapsed. America was the only game in town. There was no one who could challenge the supremacy of the Americans. So America created the New World Order, which is based on global trade. But because the United States controls the US dollar, it can now control pricing, meaning the Americans can decide the value of everything.

What America did was create a price hierarchy and a global division of labor:

• Finance: America
• Knowledge: Europe
• Manufacturing: China
• Resources: Russia, Africa, South America

America was going to take its manufacturing and transfer it to China because it's cheaper for China to do it. All America was going to do is finance. What is finance? It's just the creation of money for the purpose of creating more money.

At first, this system sounded great because everyone was making money. But there are inherent instabilities. When you focus on finance, you become a speculative economy. You focus on gambling. This led to the 2008 great financial crisis, when the American economy collapsed. At this time, the entire world economy should have collapsed.

So what happened was all these central banks from around the world came together at the Bank for International Settlements in Basel, Switzerland. This secretive body, where all economic policies are made, decided the only way to save the world was if China spent money. Why do we have all these skyscrapers, airports, and high-speed railways in China? Because to save the global economy, China decided to invest in infrastructure and the Belt and Road Initiative. That saved the global economy.

After China did this, it developed a lot of debt. China basically said to the world, "Listen, we saved the global economy, so we deserve a seat at the table. We deserve to be equals to America. We're going to sell our Huawei phones around the world and compete with America for global dominance." And America said, "Screw you." That led, of course, to Donald Trump in 2016. The first thing Donald Trump did was initiate the US-China trade war. America tried to sanction and blockade China.

Then in 2022, Russia invaded Ukraine. What Russia is saying is, "Screw this price hierarchy." Because guess what happens? If you don't have any resources, this system doesn't work. Try manufacturing without resources. Try having knowledge or finance without resources. When Russia invaded Ukraine, it was trying to control the resources of Ukraine. Russia and Ukraine together control one-third of the world's carbohydrates. Africa and the Middle East starve to death without Russian and Ukrainian grain.

Now this entire system is in jeopardy. What's happening today is America is fighting to save its game. It's trying to save the system, the US dollar, and its hegemony. Russia and China are trying to exert themselves. We are in a time of game reset. This is the world that we live in today.

China's Strategy in the American Game

The United States wanted China to play this game, but they couldn't say to the world, "We're doing this because we're greedy and want China to be subservient to us." So they said they wanted China to play the game because it would allow the middle class to rise and make China more democratic. But that was just BS, a fraud, a lie, hypocrisy.

Now that China is in this game, what it's trying to do is restructure the game so that it is more independent. The problem for China is that America controls the entire game. America can say, "We don't like you, so you can't trade anymore," and then limit resources and market access.

What China needs to do to survive is diversify. It needs to create markets outside of the United States and find resources that are not dependent on the US. That's the game that China is playing, and that's the idea of BRICS. Before, America was trying to impose its game on everyone. Now, China is just trying to create a system that is not so dominated by the Americans. That's the Chinese mentality.